Defined Benifit Pension Plan,,,Are they safe?? (pay, taxes, rate)
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Location: Finally escaped The People's Republic of California
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Actually posted this over on the Retirment Forum first
Where I work we have a defined benifit Pension Plan, alot of the guys fixing to retire are taking the Lump Sum option instead of a monthly payment, They claim to "not trust the Company" Now this is a fortune 500 company, with a fully funded Pension Plan....
I did a little math, If I took the Lump Sum, I would have to make 7% interest to get what the monthly payment is...the best I could find today was 4%... So tell me why take the lump??
Also just look at any teacher pension fund across the US..they have lost money and are woefully underfunded.
If you take the lump sum..it's YOUR money to do with what you will.
If you stay with your company, you are at their mercy and you have to have faith they will be there for the next 30-40 years to pay you.
I'm in a big company and I've watched them widdle away at retirement pensions and health insurance over the years (20 years).
You might want to look at Immediate Annuities if you were to take a lump sum and compare the monthly output from each.
Basically your decision to stay with them or take the lump sum should be based on your knowledge and faith that they will be there for the next 30-40 years to mail you that monthly check.
While they may be fulled funded now the future is anyone's guess.
+1 to HappyTexan. Given the opportunity (I don't have one but the wife has a defined pension from a previous job) I'd take the lump sum and manage it conservatively over the risk of leaving it in the hands of others who may or may not do a good job.
Ask my Father in Law,Pan Am's fifth senior 74 captain in '91 whether you should take a lump sum distibution !!! LOL, Doesn't matter, if I had his money, I'd burn mine for heat in winter !!!!!
I hope when you take the lump sum, you are in a state that doesn't tax pensions because it seems a lot of states will tax pensions to some degree and there are few that won't tax them at all... before you get the lump, might want to relocate for the lump sum... of course the federal government will want their "fair" share hehehehehehehhe.... taking a lump sum may owe higher federal taxes than you would otherwise pay with a monthly benefit... most people can't handle lump sums, cause they go on a spending binge... the monthly benefit will protect you against spending beyond your means...
Also just look at any teacher pension fund across the US..they have lost money and are woefully underfunded.
If you take the lump sum..it's YOUR money to do with what you will.
If you stay with your company, you are at their mercy and you have to have faith they will be there for the next 30-40 years to pay you.
I'm in a big company and I've watched them widdle away at retirement pensions and health insurance over the years (20 years).
You might want to look at Immediate Annuities if you were to take a lump sum and compare the monthly output from each.
Basically your decision to stay with them or take the lump sum should be based on your knowledge and faith that they will be there for the next 30-40 years to mail you that monthly check.
While they may be fulled funded now the future is anyone's guess.
Many recent took a lump sum because they thoguht looking at their say IRA they could do better. many where very disappointed.Pension plan themself vary as to howits invested and the risk.
TexDav = yup! My wife has a pension plan but her lump sum is her contributions plus a 100% match by the company, and they give her 8% interest on that. As long as they are giving an 8% interest rate we'll leave money in there, that's better than any guaranteed rate of return we could get.
With some smart dividend stock buys in todays market you could probably come close to 5.5%-6% return, and that would just increase YOY as the dividend payouts increase.
I did the math and one company I was looking at had a 30 year history of increasing dividend payouts, and by increasing it at 1/2 the rate they historically do I was looking at a 20% ROI in 30 years. Can't remember the company now though, it was I believe an electric utility.
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